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Friday, November 16, 2012

Killing the Hostess

Arthur Scargill, the former leader of Great Britain's National Union of Mineworkers, was once asked under what conditions was it acceptable to shut down a coal mine.  His reply was that a mine could only be shut down when every last ton of coal was removed from the mine.  If it cost $100 to mine $10 worth of coal, that did not matter; or if keeping an unprofitable mine open cost the country millions of pounds, that did not matter either.  The mine existed to employ and provide income to mineworkers, all other considerations be damned.

Mr. Scargill would likely approve of the actions of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) in its conflict with Hostess Brands.  After the BCTGM refused to abide by contract terms forced on them by a bankruptcy court and chose to strike, the bankrupt company decided to liquidate and layoff its entire workforce, including other non-BCTGM union workers.

The BCTGM has tried to make a case that the greed of owners and poor management are responsible for company's problems and that workers are being made to pay for their mistakes.  However, the Teamsters Union negotiated an acceptable package of pay and benefit cuts that it could present to its members, 53% of whom approved it.  Hostess Brands' offer included a 25% equity stake for workers and two seats on its eight-person board of directors.  The Teamsters, while acknowledging the problems with Hostess' owners and management, accepted the reality that cuts were necessary for the company to stay in business.  The Teamsters urged the BCTGM leadership to allow its members to vote on whether to accept the contract terms imposed by the bankruptcy court, but if a vote was done, the results were never revealed. 

The BCTGM accomplished a successful murder-suicide against Hostess Brands, but this Pyrrhic victory provides a fascinating look into a union completely divorced from reality.  The fundamental purpose of a union is to achieve more for its members collectively than its members can achieve individually.  If Frank Hurt, the aptly-named BCTGM president, has some higher vision in which the loss of 18,000 jobs (more than 11,000 of those jobs belonging to non-BCTGM members) collectively benefits BCTGM members, it is not readily discernible.  From the outside, it appears that individual BCTGM members would have been much better off if they had ignored their union representatives and returned to work.

In the end, the only collective benefit that BCTGM provided its members was anger, not leadership, not solutions, not hope, not jobs.  If members stay riled up about executive salaries and bonuses and how it is all management's fault, they will be insulted by a 25% equity stake and a quarter of the seats on the board of directors.  Keep members angry, and the changing American appetite and bad economy are just excuses to attack labor, not an imperative for a less contentious relationship between management and labor.  If nothing else, the BCTGM showed America what its fired up members can do to any struggling company that tries to mess with them.

The sudden demise of Hostess is a stark reminder that math always wins out.  At the bitter end, you can rage all you want, but the numbers will not change to appease you. 

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